The Reserve Bank of Australia has cut its official cash rate by 25 basis points to 1.75 per cent, reflecting ongoing uncertainty about the global economic outlook.

The Australian dollar dropped sharply against both the US and Kiwi dollars in the minutes following the announcement. By late afternoon, the Aussie was trading at US75.70c - down by more than a US1c. The Kiwi/Aussie cross rate jumped to A92.3c from A91.4c just before the release.

In reaching its decision, the bank's board had taken note of developments in the housing market, where it said price pressures had tended to abate.

"At present, the potential risks of lower interest rates in this area are less than they were a year ago," the bank said in a statement.


Several advanced economies have recorded improved conditions over the past year but that conditions have become more difficult for a number of emerging market economies, it said.

China's growth rate moderated further in the first part of the year, though recent actions by Chinese policymakers are supporting the near-term outlook, it said.

Commodity prices have firmed noticeably from recent lows, but this follows very substantial declines over the past couple of years. Australia's terms of trade remain much lower than they had been in recent years.

"Sentiment in financial markets has improved, after a period of heightened volatility early in the year," it said. "However, uncertainty about the global economic outlook and policy settings among the major jurisdictions continues," the bank said in a statement.

In Australia, the economy was continuing to rebalance following the mining investment boom.

"Taking all these considerations into account, the board judged that prospects for sustainable growth in the economy, with inflation returning to target over time, would be improved by easing monetary policy at this meeting," Reserve Bank Governor Glenn Stevens said.